Campbell Soup seeks new sales recipe

MattAndrejczak

SAN FRANCISCO (MarketWatch) — Campbell Soup Co.’s Chief-Executive-in-waiting Denise Morrison told investors in February she was prepared to “make bold moves that are strategically right” for the struggling soup maker.

On July 12, Morrison will share her recipe with investors gathered for Campbell’s annual analyst day. What they’d like most to hear is how she plans to stoke the company’s lethargic U.S. soup sales, which are the main reason Campbell
CPB, -6.90%
shares are down 8% over the past 12 months, badly lagging an 11% gain for the S&P Food Producers Index.

Reuters

Campbell’s weak performance has forced the company to twice cut its earnings forecast over the past year. Domestic soup sales at Campbell are facing a second straight year of declines by the time the company wraps up fiscal 2011 in July.

Campbell can’t seem to connect with consumers despite steps taken to improve soup sales during and after the Great Recession.

It has cut sodium levels, reformulated its Chunky line with leaner meats and more vegetables, introduced Select Harvest and V8 soups, and rolled out a $100 million marketing blitz to get people to eat more soup.

These and other actions have had little impact, raising questions as to why inexpensive, easy-to-make soup isn’t more in demand when nearly 14 million Americans are unemployed.

In the packaged-food sector, Campbell shares are one of the least favorite among food analysts polled by FactSet Research. There is just one analyst among 20 who recommends buying Campbell shares, while 80% of them rate the stock a hold.

Campbell does pay a handsome dividend, keeping some investors interested in the stock. Over the past five years, the payout rate has grown nearly 60% to $1.16 a share on an annual basis.

New recipe

A new premium soup called “Slow Kettle” will be part of Morrison’s game plan when she is expected to take over the CEO slot Aug. 1.

The preservative-free product will arrive at supermarkets at the end of this summer, just ahead of the prime October-to-March soup season.

Slow Kettle could address one issue that’s plagued Campbell, which sells close to 2 million cans of soup a year, according to food industry veteran Rick Shea of Minneapolis-based Shea Marketing Inc.

“That’s been Campbell’s challenge. They haven’t been able to drive growth in premium,” said Shea, a former Kraft Foods brand manager who built up Kraft’s Tombstone frozen pizza business.

Slow Kettle won’t come in a can but in new clear plastic packaging to give it a colorful and modern look that will appeal to consumers under the age of 30. With a restaurant-quality taste, it aims to appeal to higher-income shoppers, according to food industry analysts.

“It looks promising,” Shea said.

Not like past recessions

It seemed like a no-brainier when the U.S. economy hit the skids a few years back. Campbell would thrive as shoppers became thrifty and sought cheap meals like soup, which sold better in past recessions.

However, Campbell and its chief rival General Mills Inc., maker of Progresso Soup, have found growth challenging. For the 52-week period ended May 1, total U.S. soup sales at food retailers were down 3%, according to SymphonyIRI Group.

Each have unsuccessfully used different tactics. General Mills
GIS, -2.63%
has aggressively cut prices, while Campbell has flip-flopped between increasing prices and cutting them.

Campbell has suggested soup faces more competition from other easy-to-prepare meals, such as frozen pizza and macaroni and cheese. It’s also said consumers aren’t stocking their pantries with soup like they used to.

Another issue seems to be that consumers have gravitated to fresh pre-prepared soups sold near supermarket deli-meat counters. The new look and feel of Slow Kettle appears to take a stab at that market.

Alexia Howard, food analyst at Bernstein Research, said Campbell is making the right strategic move launching Slow Kettle. She said it bears watching whether Slow Kettle will spark incremental sales growth or cannibalize Campbell’s sales of its canned soups and hurt margins.

Morrison’s task is not unlike that of her current boss.

Campbell’s retiring CEO Doug Conant had to shore up the company’s U.S. soup business when he took the helm in 2001. He engineered a plan that saw five consecutive years of growth until last year.

It’s now up to Morrison — credited with spearheading the expansion of Campbell’s classic V8 tomato juice into new beverage categories — to come up with a fresh recipe.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.